Ok, @TradeViper, so in that chart that you posted I would have entered long at the open of the second bullish candle after the pennant pattern completed. The reason I would have entered that is that we had a very explosive upward movement. Then we would have moved sideways a bit before the market moving up further. That first bullish candle breaks though the resistance level with strength telling me that the bulls are in control. I also have two clear spots for stops depending on how aggressive I want to chase this trade. First stop option is at the low of the first bearish candle after the first upward move (sorry, your screenshot doesn’t give me times and dates). Second stop option is at the low of the indecision candle right before the first upward move.
The reason I would not have entered sooner is that I had no confirmation that the market would continue up. A case could be made to enter at the open of the third bullish candle in the first move but that is at a level where price bounced from in the past. Waiting for the extra confirmation reduces the reward but I think it would also increase the win percentage.
The only downside is that I don’t see a clear way to set profit targets. If this trade came at the start of my trading hours and I had a few hours to watch the charts then no big deal, otherwise, if I needed to go to bed and couldn’t watch the charts then I would probably set my TP for a 2:1 risk reward ratio.
Does my reasoning of why this is a good setup make sense?
In other news, time for updates on my current demo swing trades.
AUD/USD - I took off half my position as the pair is starts to move into a range, and I also moved my stops to yesterday’s open price (0.78506). I want a very tight stop to preserve as much profit as possible before I no longer have a clear directional bias on this pair. I also set a take profit target at 0.78110. The price is currently approaching the mean of the range now so it’s a wait and see what happens. I will probably keep my stops tight as price continues to go down. This trade is currently 45 pips in the profit for a half position (250 units).
USD/JPY - I entered a short position at 112.178 as price was halfway between the upper bound of the range and the mean. My stop is at 113.5 which is that the highest high of the previous bullish leg in the range. Take profit is at the bottom of the range at 108.5. I might have entered too early on this trade as price is moving steadily against me. Currently -60 pips on this trade.
Next Steps in my Development
I feel like I am getting the hang of swing trading with price action. I feel more confident in my abilities to read the charts and understand what they are telling me. I am not ready to throw my money at the market yet, but I think I can sit down and write my trading plan and codify my setups and strategies into words.
Goals for the coming weekend:
A) Test box breakouts on a tick chart in a new demo account set to $100 with 20:1 leverage
B) Write out my trading plan
C) Test out a trading strategy where I take my directional bias from the daily chart, set stops and targets on the 1hr chart, but use the 15-minute chart for entry into the position. I need to think more about how I put this strategy into a series of IF statements (If this happens, then do this - remember, I am a computer programmer)
D) Learn to use and love MT4 - having gotten my start using NinjaTrader this might be a longer-term goal because I used to rely on Fibonacci retracements and extensions but I have dropped them from my trading lately
Ideally, I will reach a point where I have 5 potential trading strategies that I can trade at any one point. Some strategies for the shorter time frames like tick charts, 5 minute charts, and 15 minute charts, and some strategies for longer period time frames such as 1 hour or 4 hour charts.
When I first start trading with real money, I will only be able to be in front of the charts for about 3 hours a day in the evening. I can monitor my trades throughout the day and roll stops or adjust targets if needed, but analyzing charts and entering trades is not something I would be able to do while working. Also there may be some weeks where I just won’t have time to be in front of my computer every night such as having to work late some nights or having other things going on.
While at first glance trading tick charts or 5 minute charts seems like it would lend itself well to my schedule, the missing nights would really hurt my overall returns. However, having swing trades active in a second account would cover the weeks where I can’t sit in front of my computer and trade the short term trades in the evening.